Animal Spirits and the Business Cycle: Empirical Evidence from Moment Matching

This chapter explains what the business cycle is and what causes business-cycle fluctuations. We call fluctuations in economic activity around the long-term growth trend ‘the business cycle’. The business cycle consists of two phases. The first is a period of strong economic activity. The second, following the first, is a period of weak economic activity. We call the first phase of the business cycle an ‘expansion’ and the second phase a ‘contraction’ or ‘recession’. The chapter explains what causes business cycles, and examines the empirical evidence on the lengths and strengths of the typical business cycle. It finds that expansions typically last longer than recessions. The chapter also shows that the length of expansions has increased during recent decades.

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Animal Spirits, Technology Shocks and the Business Cycle

Contributions to Economics - Business Cycle Models with Indeterminacy ◽

10.1007/978-3-642-47018-9_4 ◽

1998 ◽

pp. 125-161 ◽

Cited By ~ 2

Author(s):

Mark Weder

Keyword(s):

Business Cycle ◽

Technology Shocks ◽

Animal Spirits ◽

The Business Cycle

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Animal spirits in an open economy: an interaction-based approach to the business cycle

The B E Journal of Macroeconomics ◽

10.1515/bejm-2016-0141 ◽

2019 ◽

Vol 20 (1) ◽

Author(s):

Tae-Seok Jang

Keyword(s):

Business Cycle ◽

Open Economy ◽

Rational Expectation ◽

Spillover Effects ◽

Group Behavior ◽

International Business Cycles ◽

Moderate Degree ◽

Forecast Performance ◽

Animal Spirits ◽

The Business Cycle

Abstract This paper examines the effects of boundedly rational expectation on the business cycle in a two-country New Keynesian model. Forecast heuristics in a closed-economy, De Grauwe’s (2011) model, is extended, and the effects of heterogeneous agents are incorporated in an open economy. In particular, the expectation formation process is constrained by waves of optimists and pessimists – the so-called “animal spirits.” As a result, the model is able to explain group behavior based on forecast performance, which has significant effects on output and inflation dynamics in the two countries. The simulation results suggest that heterogeneity in group behavior and nominal rigidities, as well as a moderate degree of international trade, amplify spillover effects on international business cycles leading to high cross-correlations in output and inflation.

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“Animal spirits” and bank’s lending behaviour, a disequilibrium approach

Studies in Nonlinear Dynamics & Econometrics ◽

10.1515/snde-2016-0095 ◽

2019 ◽

Vol 24 (2) ◽

Author(s):

Carl Chiarella ◽

Corrado Di Guilmi ◽

Tianhao Zhi

Keyword(s):

Business Cycle ◽

Dynamic Model ◽

Credit Market ◽

Collective Behaviour ◽

Supply Side ◽

Real Economy ◽

Animal Spirits ◽

Credit Cycle ◽

The Business Cycle

AbstractThe paper analyses from a disequilibrium perspective the role of banks’ “animal spirits” and collective behaviour in the creation of credit that, ultimately, determines the credit cycle. In particular, we propose a dynamic model to analyse how the transmission of waves of optimism and pessimism in the supply side of the credit market interacts with the business cycle. We adopt the Weidlich-Haag-Lux approach to model the opinion contagion of bankers. We test different assumptions on banks’ behaviour and find that opinion contagion and herding amongst banks play an important role in propagating the credit cycle and destabilizing the real economy. The boom phases trigger banks’ optimism that collectively lead the banks to lend excessively, thus reinforcing the credit bubble. Eventually the bubbles collapse due to an over-accumulation of debt, leading to a restrictive phase in the credit cycle.

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